This is a rising question that smaller banks face challange in Austraila than larger banks of not. It has become a cause of discussion in the financial industry with different regulations. 

Jane Smith, Australia, the director of AML policy, said, “Effective AML program implementation requires investments of technology, more resources monitoring, and training of the staff as compared to community banks and credit unions. 

The KYC and transaction monitoring rules apply to all banks, but smaller institutions may find it harder to meet the costs and requirements than their larger competitors.  

Let’s discuss the differences that satisfy AlML laws in Australia that smaller financial organizations may have. 

What are AML Requirements in Australia?

AML requirements in Australia has strengthened its standards with a number of stringent measures meant to check money laundering and financing of terrorism. 

Australia has the following as its AML/CFT requirements: Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the rules made under it with updates to the changes in risks anticipated by 2024. 

These comprise the initial customer identification mechanism, identification through biometrics, transactions tracking for any irregularity, and reporting the same to AUSTRAC if detected. Noncompliance has severe consequences and attracts severe fines.

Bonus: Our guides on how to enhance transaction monitoring and employee training are useful for information on how your institution may improve its program and maintain its regulations.

Size Differences Between Large Banks and Smaller Institutions

Commonwealth, Westpac, ANZ, and NAB collectively have branches across the nation, have tens of thousands of employees, and hold trillions in total assets. 

It is possible to distinguish major Australian banks as large institutions and credit unions or community banks as the small counterparts of the system. 

Most credit unions are small, have fewer employees, and have only several branches at most. Such dissimilarities raise questions on how both categories of the institution can address and meet the country’s rigid AML/CFT standards.

Resource Disparity

Implementing and adhering to CDD checks, Biometric Identification, transaction filtering and monitoring software, and staff awareness training all indicate certain costs. 

Regional banks and credit unions arguably need to have the luxury of budgets that true megabanks can afford to place into their AML efforts. 

To meet Australia’s uncompromising standards of anti-money laundering measures, this disparity of resources is a big challenge for the small players in the financial industry that seek.

Technology Adoption Challenges

If one is to adhere to new evolving AML/CFT rules, there is always a need to advance in new technologies.  

Credit unions have to work with fewer resources and not be able to adopt such tools as swiftly. Although the largest financial establishments adopt new solutions such as artificial intelligence-based transaction monitoring or biometric customer identification. 

This effects their capacity to meet the needed obligations of AML compliance program within Australia’s risk-based standards.

Monitoring High-Risk Transactions

AML/CFT rules entail that financial institutions pay close attention to all customers’ activities in order to identify any suspicious patterns. 

Such investments in the effective AI and data analytics performed by major banks to identify high-risk transactions may be a problem for small banks. 

Credit unions, particularly, may find themselves unable to employ sufficient resources for the kind of intensive transaction-matching required to meet the AML screening requirements. 

Some of these advanced biometric AML requirements, such as voice recognition or facial scans, could also be cumbersome for implementation in smaller institutions.

Customer Due Diligence Processes

Customer due diligence includes obtaining main identification documents, identifying customers and their addresses, and evaluating the risk level. 

This also includes a comparison of names with the lists of potentially dangerous individuals. Such biometric and digital methods of AML identification, popular with the major banks, facilitate these measures. 

Credit unions are generally financially poorly endowed and encounter challenges in deploying technologically advanced KYC tools. This is to satisfy high standards AML/CFT customer screening norms. 

This will leave some of the smaller banks vulnerable due to some of the old-fashioned manual procedures.

Ongoing Training Regulations

Most parties operate fully compliant AML programs, and constant staff education remains inevitable. 

In Australia, the AML/CFT legal obligations provide for rigorous training courses. This applies to all the employees in the organization so they can update their understanding of money laundering risks and the organizational measures in place to deal with them. 

To meet those responsibilities, it is easier for Australia AML requirements for banks to provide strong training capabilities. It is financially unviable to conduct annual training programs on Australia’s highly prescriptive screening regulations for small credit unions.

Penalties for Noncompliance

Noncompliance with Australia’s AML/CFT rules and regulations is a legal and financial offence. 

The country has no tolerance for those banks without an adequate policy or technological competence to report suspicious activities by their employees.

These are the effects that can be seen in all organisations. However, the potential regulatory and reputational risks may be more harmful to the credit unions, especially the small ones, than the big banks, owing to the differences in their financial strengths.

Every bank must proceed with upgrading the technology infrastructure and controls. Find our suggestions on how you can choose the correct AML compliance solutions.